PREVIEW-Nokia to fall deeper into the red

* Nokia to report Q2 results on July 19

* Phone unit loss seen 236 mln eur vs 127 mln loss Q1

* Analysts see 3.8 mln Windows phones Q2 sales, 5.1 mln Q3

By Tarmo Virki

HELSINKI, July 11 Nokia NOK1V.HE is expected
to have tumbled deeper into the red when it reports quarterly
results next week, with sales of the Microsoft-based (MSFT.O)
smartphones that it hopes will save the company unlikely to pick
up until later in the year.

The world's second-largest cellphone maker was late to the
smartphone war in which Apple (AAPL.O) and Samsung (005930.KS)
have gained dominance. It is fighting back with phones called
Lumia, which use Microsoft's Windows software.

The phones have won some good reviews, but have had
relatively little success among consumers and slow sales have so
far thwarted Nokia's recovery efforts.

In the three months to June, all three major credit ratings
agencies cut Nokia bonds to "junk", the company warned twice on
profits and said it planned to cut one in five jobs.

Microsoft dealt Nokia another blow when it said the current
Lumia phones will not run its new software, rendering them
obsolete. Analysts said sales of Lumia phones will be limited
until Nokia launches newer versions in the fourth quarter.

"The question is: how bad will be the third quarter? How
deep will it go," said Pohjola analyst Hannu Rauhala.

Nokia is expected to report a second-quarter operating loss
of 236 million euros from its handset business, almost double
the 127 million loss in the previous quarter, according to a
Reuters poll of 38 analysts. [ID:nL6E8IB1JW]

Analysts expect a rollout of new, basic phones to help lower
the phone business' operating loss in the third quarter to 149
million euros.

They forecast the group's net loss to shrink to 557 million
euros from 706 million in the second quarter.

Ratings agencies are worried Nokia is tearing through its
cash reserves at an unsustainable rate. With the cost of Nokia's
debt rising, the most bearish of analysts say the company could
even be at risk of default in 2014.

Over the past five quarters, the one-time darling of mobile
telcoms has eroded its cash pile by 2.1 billion euros - a rate
that could wipe out its entire 4.9 billion euros reserves in a
couple of years.

Analysts on average expect the company will burn through 1.9
billion euros more in just three quarters, while the most
bearish see the company wiping out its 4.9 billion euros net
cash buffer completely next year, the poll showed.

On average, they expect Nokia's net cash position to drop to
3.7 billion euros at the end of second quarter and to 3.2
billion at the end of third quarter.

In addition to losses from operations, Nokia paid out more
than 700 million euros as dividends during the second quarter
and the results will likely include also massive restructuring
charges from the 10,000 job cuts.

WINDOWS QUESTION

Nokia is widely expected to unveil models using the new
version of Windows software in September, and these, coupled
with typically stronger holiday sales should fuel an uptick in
the fourth quarter.

However, there is no certainty another version of the
Microsoft software would help.

Despite Nokia's strong focus on Microsoft, the platform had
only a 2 percent market share in the first quarter of 2012
having failed to win a meaningful share for more than ten years.
This compares with 23 percent share for Apple and 56 percent
share for Google.

In the near-term, analysts said Microsoft's software upgrade
could hurt Nokia's more expensive smartphones - and the firm
might have to write down the value of its inventory - while the
cheapest Lumia 610 model could fare better as it will not
compete directly with high-end models running new software.

"Nokia's near-term fortunes now largely depend on the lower
priced Lumia 610, rather than the Lumia 800 and 900 which will
be a tough sell given the looming launch of Windows Phone 8,"
said Ben Wood, head of research at CCS Insight.

Analysts forecast Nokia's second-quarter sales of Windows
phones to roughly double from the previous quarter to 3.8
million units, helped by the rollout on new markets and the
Lumia 610. They expected sales to rise further to 5.1 million in
the third quarter.

(C) Reuters 2012. All rights reserved. Republication or redistribution of
Reuters content, including by caching, framing, or similar means, is
expressly prohibited without the prior written consent of Reuters. Reuters
and the Reuters sphere logo are registered trademarks and trademarks of
the Reuters group of companies around the world.

Trending Stories

Sponsored Topics

Reuters is the news and media division of Thomson Reuters. Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Learn more about Thomson Reuters products: